Construction activity sees significant increase again in December

The Irish construction sector recorded further strong growth of activity at the end of 2013 as new orders rose sharply again. Purchasing activity and employment increased as a result, while record optimism was registered.

The Ulster Bank Construction Purchasing Managers’ Index® (PMI®) – a seasonally adjusted index designed to track changes in total construction activity – remained well above the 50.0 no-change mark in December, posting 58.3. Although this was lower than the reading of 58.8 in November, the index still pointed to a substantial increase in construction activity in Ireland. Confidence among clients had led to improved new order levels, thereby supporting growth of activity.

Commenting on the survey, Simon Barry, Chief Economist Republic of Ireland at Ulster Bank, noted that:

“The Irish construction sector continued to enjoy rising activity levels as 2013 drew to a close, according to the latest results of the Ulster Bank Construction PMI. The headline PMI index edged lower in December but remains at elevated levels and continues to signal strong expansion in overall activity, as it has done for the past four months. Home-building remains the strongest sub-sector, with the latest improvement in the Housing index taking the rate of expansion to its fastest in almost nine years. Further solid gains were also recorded in Commercial activity, though survey respondents reported that activity on civil engineering projects continues to lag some way behind.

“Rising activity and a further sharp increase in new business levels have prompted firms to continue to expand their staffing levels: the survey showed a fourth consecutive monthly gain in employment, though the pace of increase eased slightly last month. Looking to the year ahead, Irish construction firms are optimistic that the signs of improvement that took hold over the second half of last year will be sustained through 2014. Indeed, sentiment around the 12-month outlook reached a second consecutive record high for the survey as two-thirds of firms indicated that they expect activity to be higher in a year’s time than in December. Perceptions of improved conditions in the Irish economy generally along with opportunities in overseas markets were the main drivers of the high confidence levels, as Irish constructors clearly believe that their industry has turned the corner following what has been a brutal downturn for the sector.”

Housing activity rises at second-fastest pace in series history

The overall rise in activity was again centered on the residential and commercial sectors, with rates of expansion quickening across both sectors in December. On the other hand, civil engineering activity continued to fall, and at a sharper pace.

Strong increase in new orders

New orders rose substantially again in December, extending the current sequence of growth to six months. The rate of expansion was only slightly weaker than that seen in November, which was the strongest since October 2006. Panellists reported improved tender availability and greater success in securing new projects.

Survey-record optimism

Latest data suggested that construction firms expect growth of activity to continue during 2014. Sentiment was the highest in the survey’s history, with improving economic conditions the main driver of optimism. Constructors also predicted that more work overseas would support growth of activity. Two-thirds of respondents forecast activity to be higher in 12 months’ time than current levels.

Constructors record further job creation

Rising workloads led construction companies to increase their staffing levels for the fourth successive month. That said, the rate of job creation was modest, having slowed from the solid pace seen during November.

Purchasing activity rises sharply

Increased demand also contributed to a further sharp rise in purchasing activity during December. Rising demand for inputs imparted pressure on capacity at suppliers, and a lack of stock resulted in a solid lengthening of delivery times which was the strongest since August.

A fourth consecutive monthly increase in input prices was recorded by construction firms in December, although the rate of inflation eased for the second month running and was broadly in line with the long-run series average.